STATE OF BUSINESS: The New Order

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As steel goes, says an old economic dictum, so goes the economy. Looking at the charts last week, economists brought up on the old business axiom might have been puzzled by what they saw. Steel production, long the prime index of U.S. economic health, was down to a bare 62% of capacity, some 8% lower than the first-half average and 30% below the 1953 July level. But while steel lagged, the economy as a whole was still racing along at a near-record level. In Washington, the Federal Reserve Board announced that its overall index of industrial production, while off from its peak, was still at 124% of the 1947-49 average, about where it was six months ago (see chart). Reported the Commerce Department: total output of goods and services rose in the second quarter to an annual rate of $356 billion, only 4% behind record-smashing 1953.

Out of Whack. The old economic saw is out of whack in 1954 for several reasons. The first is that steel, while still vital, has lost some of its relative importance on the U.S. industrial scene. In the past few years, vast new industries have grown up to lessen steel's weight. Such war babies as plastics and light metals are booming in peacetime—and cutting into steel's old markets: in July aluminum production rose to 252 million Ibs., a new record. Electronics is now a $5 billion annual business; TV sales hit an alltime high of 2,805,760 sets for the first six months of 1954. The $4.3 billion postwar petrochemical industry is another case in point.

Because of the changes in the economy, FRB's industrial production index itself is no longer the statistical touchstone it once was. A whole new group of nonmanufacturing industries has grown up and must be counted, notably such huge service industries as airlines and buses, trucks, hotels and entertainment. The booming construction industry is not a factor in FRB's industrial index, though it is one of the greatest strengths of the present-day economy.

Over 350. Steel's own chart can be misleading. While the industry is operating at low levels in relation to its present capacity, the capacity has grown so much that actual output is 4.4% ahead of the 1947-49 average. Steelmen last week were looking for an early pickup as automakers start on their 1955 models (see below), railroads place their winter equipment orders and shipbuilding picks up under new government stimulants.

Other businessmen were talking in an equally optimistic vein. In Manhattan, a Dun & Bradstreet survey of 1,126 executives showed that some 48% expect an increase in net sales over 1953 during 1954's fourth quarter; only 22% forecast a sales drop. On Wall Street, the stock market reflected the businessmen's optimism. Aircraft stocks, which have led the market with a 75% rise in the past six months, climbed higher still. Six months ago, many a trader wondered if the Dow-Jones industrial average would ever hit 300. Last week the industrials pushed up 2.87 points to 350.38.